How Mobile Cloud Services Will Consolidate After The Death Of StackMob

StackMob is dead. PayPal bought it and wasted no time killing the product and integrating its team and tools into its own infrastructure. If you ask just about anybody that plays in the mobile backend-as-a-service industry, this comes as little surprise.

The death of StackMob is a litmus test for the backend-as-a-service sector. Along with Parse and Kinvey, StackMob was considered one of the three hot startups to help define this era of mobile middleware that helps mobile developers attach cloud properties to their apps without needing backend expertise.

StackMob, Parse and Kinvey all started with a focus on developers. Each, in its own due course, realized that selling to developers is basically impossible. Indie developers don’t have money and enterprise developers don’t have control over budgets. The developer-centric approach was not scalable.

So, the three companies turned to customers that do have money: Brands and enterprises.

Parse made its mark by providing development tools to brands that needed mobile solutions. Kinvey and StackMob chose the route of the enterprise. In this, StackMob had the most trouble trying to monetize its product and never really figured out its way into enterprise sales channels. In the end, StackMob didn’t have a real business.

Couple that with some questionable decisions and some early strife among the leadership team (COO and one of StackMob’s first employees Pouyan Salehi left in 2011, shortly after launch) and StackMob was ripe to fall off the tree. When PayPal came knocking with an acquihire offer, CEO Ty Amell had the best opportunity to make an exit to save face, make some money and get his team new jobs. This is how VC-backed San Francisco startups die.

“Mark [Zuckerberg] wants to continue to get developers on top of [Facebook] cheap and Parse didn’t care too much for the enterprise and FB was a great fit,” said Jeff Haynie, CEO of Appcelerator. “I also think this speaks to how (impossible) hard it is to solely monetize through developers … Developers themselves are struggling to themselves make money if independent and if inside an enterprise, they don’t generally have budget. So it’s tricky how to give great value to developers but also monetize that value. Most companies haven’t figured that out and I count Parse/StackMob in that camp (among many others).”

Parse co-founder Ilya Sukhar

For Kinvey’s part, it is still independent (though many think an acquisition offer will come this year), but it has also figured out how to sell into enterprises by engaging the stakeholders in companies that actually do hold the purse strings. Kinvey announced this week a new product it calls Dedicated BaaS, which provides mobile backend services to build apps for enterprises on a variety of standardized infrastructures. Kinvey has clients like the Game Show Network, Johnson & Johnson Macquarie Bank, Aetna, Vibram and Womack Machine Supply Company.

“The first [three] BaaS vendors built compelling platforms with very useful features for mobile developers. All 3 raised roughly the same amount of money $7M – $8M via a seed and A round of financing,” Kinvey’s Sravish Sridhar said. “But, at the end of the day, it’s very difficult to create a sustainable and long-term business by just solving backend issues for individual developers, especially with just Series A funding. The market to build a business is with the enterprise. Those that couldn’t make the transition to enterprise, struggled to keep going or raise money, and have since been acquired, and in [StackMob’s] case, they shut down the service too.”

How Market Dynamics Will Consolidate BaaS

The maturation of mobile is manifesting in a multitude of measurements.

If you think of the mobile ecosystem like a balloon, you see the cycle in which companies and services grow, become popular and eventually start to consolidate and contract. In this process, a lot of “me too” copycats rear their heads and either create their own market niches or die due to poor quality. Market dynamics have come to roost as the leaders and wannabes in mobile are defined.

We see this happen throughout the mobile industry. Mobile encompasses a wide swatch of technologies and verticals including device manufacturers, cloud providers and services, app stores and developer resources like middleware and analytics, platforms like Android and iOS, cellular carriers, connectivity, security… the list goes on. But every one of these verticals represents a bucket that makes up the mobile ecosystem and each is prone to market dynamics of an ever-changing industry.

What we have seen in the BaaS realm is that the market was defined, started gaining traction and then consolidated. Outside of the “original three” companies, mobile backend-as-a-service startups have cropped up with companies like FeedHenry, Kidozen, AnyPresence, Applicasa, Sencha.io and others getting into the game. Appcelerator bought San Francisco-based Cocoafish to get in on the mobile cloud services game and has focused on enterprise development as opposed to individual developers for several years now.

At the same time, the largest players also want in on the backend game, too. Google has its App Engine cloud platform (and Google Drive) for developers to tie into its own full-service backend. Microsoft has Azure and OneDrive (formerly SkyDrive). Apple has iCloud.

There is pressure from the top of the market to give developers easy tools to cloud structures that will run their apps. The BaaS companies play with the technology behemoths by integrating those backends while also inherently competing with them. With more than 20 other startups working on mobile cloud services, the market is ripe for consolidation as companies fail—like StackMob—or are acquired.

“The other guys you mentioned will likely fall by the wayside or struggle with any sort of relevance. With [venture capital] funded companies the path is clear—get big or exit (or shutdown),” Haynie said.

Then you have traditional cloud and infrastructure providers like Oracle, IBM, RedHat, VMWare and SAP, which also dabble in mobile and provide services to enterprises but none of them are 100% dedicated to mobile the way companies like Parse or Kinvey are. IBM is probably the closest but its mobile business model is more about client consultant sales across an entire enterprise than specifically in mobile.

The maturation of mobile and the BaaS sector will continue to lead to more consolidation. I predicted this in late 2011 and early 2012 and the timeline of the market dynamics fits with the activity that has been happening within the last six months. The companies that truly get how to make money off enterprises and brands—the way Appcelerator and Kinvey do—will be able to outlast the competition while the second tier of FeedHenry and AnyPresence will likely get gobbled up by mobile-hungry companies in need of talent and tools.